Question 2 Barona Corp. is considering five projects in five different industries. The firm will use industry average beta to evaluate the projects. The table below shows the initial capital (Io) or investment outlay of each project in $ million, the annual free cash flows to the firm, (FCFF) in $ million, economic life, N, in years, the average industry beta (Beta), the average industry capital structure defined by debt-to-equity (D: E) ratios (by market values) and the corresponding debt-to-equity ratio financing of each project. Project Initial cost ($ Annual FCF ($ Economic life (years) Average Average industry | Project D:E industry D:E ratio ratio million) million) beta A 240 67.40 5 1.5940 1.00 0.4 B 150 52.54 4 1.8864 1.50 0.9 C 300 185.31 2 0.6368 0.67 4.0 D 360 91.59 6 0.7500 0.20 0.2 E 150 62.99 3 1.2680 0.55 0.6 The risk-interest rate is 3% while the average market return is 10%. Assume a corporate tax rate of 30%. Irrespective of which project is undertaken, the firm can raise new debt capital at 2% above the risk-free rate. (i) Required: Assume the projects are independent and the firm does not have capital constraint (it can undertake all projects), rank the projects in order of their viability. Show all your computations. Hint: Compute the alpha value of each project. The expected returns is each project's internal rate of return (IRR). (10 points) Assume the projects are mutually exclusive. Rank them in order of their viability. Which project would you undertake? (9 points)